Explaining Audits in Canada: Statute of Limitations

statute of limitationsIf the CRA is assessing an older year of yours that is closely approaching the end of the assessment term, you may receive a request to surrender your right to the Statute of Limitations if you need some additional time to provide CRA with all of their requests for information.

If you don’t sign it, that means Revenue Canada has to act quickly to assess it, otherwise they run into the Statute of Limitations. If you sign it, you are giving up your right to using the Statute of Limitations as a reason why their assessment might be wrong in an appeal. Sometimes we use the Statute of Limitations as a reason why they shouldn’t continue that part of the assessment, that’s why it is in place. When you file, you expect that you have a certain length of time that Revenue Canada has to look at your return and if they look within that period of time, you deal with it. If not, then you get to carry on with your life.

By signing that Statute of Limitations waiver, you’re saying that for that specific issue, the CRA can take however long they want to do their assessment. You are essentially giving up a right. Whether or not you want to give up the right is your choice.

Related: BC Small Business Guide To Being Audited

Work With The CRA, Not Against Them

I believe in working with Revenue Canada as much as possible and I believe that the individuals there are generally very good, upright citizens that are doing their job. That said, if you want to be difficult with the CRA auditor, they could also be difficult back.

statute of limitationsThere is a lot of give and take in their job and if we’re looking for some leniency, then we want to have a relationship with that auditor that you are able to build on.

I give my clients simple advice. Expect an audit and don’t do anything that is against the law. The Tax Act isn’t black and white but if you’re doing things that are constantly challenging the Tax Act or reading the Tax Act with a little too much leniency, you could easily wind up in a sticky situation. That’s why we have accountants and tax advisors reading the tax act all the time to help their clients pay the appropriate tax based on the interpretation of the Tax Act. The auditors may have a different interpretation of the Tax Act so you have to be prepared for that and be open to it and listen to their assessment.

Do The Auditors Have A Case?

Most of the time, they do have a case because it is an interpretation. Whether or not we agree with their interpretation leads to whether or not we assist them, help them or try and convince them of our own interpretation. If they assess and we don’t agree, then we go to an appeal.

In the appeal process, we discuss our reasoning for our interpretation of the Tax Act, meaning the way we believe it should be read, not necessarily the way that particular auditor read it.

Related: How Do I Know If I’m Paying Too Much Tax?

Should You Always Provide The Records They Request?

With regards to an audit, if the CRA is requesting records then give them the records they ask for but under a controlled situation. I always recommend my clients bring their records to their business advisor’s office so that information can be given to the auditor from there. It’s much easier for the auditor to do an audit while sitting in  their advisors office in a controlled setting.

The Bottom Line

The bottom line is that you should always be friendly, honest and courteous. I see a lot of people who aren’t courteous with auditors and that’s just not appropriate, nor does it pay off for them in the end. Make sure you consult your professional advisor when dealing with an audit for guidance, advice and to help you and the auditor facilitate the process effectively and quickly.

Do you have any advice for other entrepreneurs when it comes to being audited? Leave a message in the comments below.

 

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